Accord and Satisfaction by Instrument — UCC §3-311

“Write ‘paid in full’ on the memo line and once they cash it, you’re done.” The advice has circulated for generations, and it contains a grain of real law. The doctrine of accord and satisfaction allows a disputed claim to be settled by a payment offered and accepted on condition that it resolves the dispute. Article 3 codifies the doctrine for checks and other instruments in UCC §3-311 — and surrounds it with conditions that make the folk version unreliable.

The central question

When does a creditor’s collection of a check tendered “in full satisfaction” discharge the entire claim, and when does it not?

The statute

UCC §3-311 (1990 revision), as enacted in the states, provides in substance:

• (a) The section applies if the person against whom a claim is asserted proves that (i) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (ii) the amount of the claim was unliquidated or subject to a bona fide dispute, and (iii) the claimant obtained payment of the instrument.
• (b) Unless (c) applies, the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered in full satisfaction of the claim.
• (c) Subject to (d), the claim is not discharged if either: (1) the claimant, if an organization, proves that within a reasonable time before the tender it sent the person a conspicuous statement that communications concerning disputed debts, including an instrument tendered as full satisfaction, are to be sent to a designated person, office or place, and the instrument was not received there; or (2) the claimant, whether or not an organization, proves that within 90 days after payment of the instrument it tendered repayment of the amount of the instrument. Paragraph (2) does not apply if the claimant is an organization that sent a statement complying with paragraph (1).
• (d) A claim is discharged if the person against whom it is asserted proves that within a reasonable time before collection of the instrument was initiated, the claimant, or an agent of the claimant having direct responsibility with respect to the disputed obligation, knew that the instrument was tendered in full satisfaction of the claim.

Plain-English reading

A genuine dispute is the foundation

If the amount owed is fixed and undisputed — a loan balance, a sum stated on an agreed invoice with no complaint about the work — there is nothing to compromise. Paying less with a “paid in full” notation does not discharge the rest. The claim must be unliquidated (its amount not yet determined, as with a claim for damages) or subject to a bona fide dispute — a real, good-faith disagreement, not one manufactured to justify the notation.

Good faith in the tender

The payer must act honestly and observe reasonable commercial standards of fair dealing (UCC §1-201(b)(20) in states with Revised Article 1; §3-103(a)(4) under the 1990 Article 3 in states without it). Hiding the notation in fine print, or sending a check to a lockbox known to process payments automatically while ignoring the creditor’s instructions, can defeat good faith.

A conspicuous statement

The full-satisfaction condition must be stated so that a reasonable person ought to notice it — on the face of the check or in an accompanying letter. A small memo-line notation may not suffice; a clear cover letter and a prominent restrictive statement are better evidence.

The claimant must obtain payment

The claimant must obtain payment of the instrument — cashing or depositing it and having it paid. Merely receiving or holding the check is not enough. A claimant who writes “under protest” or reserves rights when depositing should not assume that preserves the claim: under Revised Article 1, §1-308(b) provides that the reservation-of-rights rule does not apply to an accord and satisfaction. State case law should be checked on this point.

The escape routes

Two protections reflect the reality of high-volume payment processing. An organization can designate an address for disputed-debt communications, and a full-satisfaction check sent elsewhere does not discharge the claim. Any claimant can undo an inadvertent accord by repaying the amount within 90 days. But under subsection (d), if the person responsible for the disputed account actually knew the check was tendered in full satisfaction before collection began, the claim is discharged regardless.

A hypothetical

Priya hires a landscaping company for a $6,000 project. Half the plantings die within a month, and she disputes the bill in a series of emails with the company’s office manager, who offers a $500 credit. Priya believes $4,000 is fair.

• She sends a $4,000 check with a cover letter stating in bold, “This check is tendered in full satisfaction of all claims for the project at 14 Elm Street. If you do not accept these terms, do not cash this check.” The company deposits it. A genuine dispute existed, the tender was in good faith, the statement was conspicuous, and payment was obtained. The claim is likely discharged under §3-311(b).
• Suppose the company had previously sent all customers a conspicuous notice designating a disputes address, and Priya mailed the check to the general payment lockbox. Unless the office manager knew of the tender before collection (subsection (d)), the claim may not be discharged.
• Suppose the company cashes the check and, within 90 days, refunds the $4,000. The claim is not discharged, unless the designated-address notice had been sent or subsection (d) knowledge applies.
• Now change the facts: no dispute ever existed, and Priya simply decides to pay $4,000 with “paid in full” written on the check. There is no accord and satisfaction. She still owes the remaining $2,000.

Limitations and misconceptions

• Undisputed debts. A “paid in full” notation cannot reduce a fixed, undisputed balance such as a mortgage or credit card balance where no bona fide dispute exists.
• Not a trick. Courts examine good faith; burying the condition or exploiting automated processing invites a finding against the payer.
• State variations. A few states have non-uniform versions of §3-311, and before Revised Article 1 some courts read former §1-207 as allowing a claimant to preserve its claim by cashing a full-payment check “under protest.” Revised §1-308(b) rejects that reading for accord and satisfaction, but states adopted Revised Article 1 at different times; check the state’s enactment and case law.
• Other instruments. The section applies to instruments — typically checks — not to electronic payments outside Article 3, which may be governed by general contract law.

Questions readers can investigate

• Was there a real dispute, documented before the payment?
• Where and how was the full-satisfaction statement communicated?
• Did the creditor designate an address for disputed debts?
• Did the creditor repay the amount within 90 days?
• Who at the creditor knew about the condition, and when?

Records worth preserving

• Correspondence showing the dispute and its basis.
• A copy of the check (front and back) and the cover letter.
• Proof of mailing and delivery address.
• Bank records showing the date of payment.
• Any designated-address notices received from the creditor.

Related authorities

UCC §§1-201(b)(10) (conspicuous), 1-201(b)(20) (good faith), 1-308 (performance under reservation of rights), 3-310, 3-601; Restatement (Second) of Contracts §281 (accord and satisfaction). See also Using Negotiable Instruments to Satisfy Debt and Discharging Debt Under UCC Article 3.

Sources

• Uniform Commercial Code §3-311 and Official Comment, via Legal Information Institute, Cornell Law School (law.cornell.edu/ucc/3/3-311).
• UCC §§1-201, 1-308 (Revised Article 1), via Cornell LII.
• Restatement (Second) of Contracts §281.

This article is published for educational and research purposes. It is legal information, not legal advice. Accord and satisfaction depends heavily on facts and on state law. Consult a licensed attorney before relying on a full-satisfaction payment.